Baidu continues to grow! - Investment opportunity?

Baidu, which is China’s largest search engine known as the “Google of China” has just struck an agreement with Volvo Cars to develop self-driving electric vehicles to Chinese customers. In this deal, Volvo Cars will offer its expertise in advanced technologies in the auto industry, while Baidu provides its autonomous driving platform Apollo.

Volvo Cars said it expects to make a third of its annual sales from driverless cars by 2025.

This deal comes a few days after Baidu managed to beat analysts’ expectations in both income and revenues.

China is home to a rapidly growing autonomous vehicles sector, with multiple tech firms in the country — including Baidu, Tencent and Didi Chuxing — all vying to own the space.

Founded in the year 2000 by two entrepreneurs in a hotel room, Baidu has become an IT Titan not just in China, but around the globe and is now getting into artificial intelligence and self-driving cars.

The Baidu search engine comes in at number 4 of the Top global sites based on time spent right behind Google, YouTube and Facebook and also number nine in the world’s top internet companies by revenue, bringing in more money than Netflix or Ebay! (see stats below)

With more than 770M users, China is the biggest world’s internet population – worth mentioning is that this is about half of Chinese population (1.4Bn) and thus there is very much more potential for growth! Furthermore, Google is banned in China and thus Baidu is very well positioned to pick up a large share.

The company is also on track to expand overseas and this is being done mainly through partnerships with the likes of Volvo, Ford, Haiweii, Microsoft, Intel and Daimler.

The company went public in 2005 on the Nasdaq Stock Exchange but the stock can also be traded on the German and Swiss market.

But is it a good opportunity for long term investment?

Below are some key points on the stock:

- Revenues on the rise year on year. The company generated $8bn in 2010, whilst last year it reached $85bn (an increase of 960% in 8 years!).
- Healthy and stable net income
- P/E ratio of 18.48 (Google has a P/E of 46.50). Forward P/E for Baidu is 16.58, whereas for Google is 22.47. Forward P/E for the sector is 56.
- P/S = 5.92
- P/B = 4.63

The stock price has suffered a lot this year and is down 35% from the all-time highs in May and currently sitting on a trend line which goes back to February 2009. For the time being this has been holding nicely and the price has rebounded back on the upside. Various oscillators are also positive each showing undervalued signals.

Personally, therefore I think that based on the price and the company’s results, the current price represents a very good opportunity to go long.

 

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